(This was originally published at NHLNumbers, but I felt it warranted wider distribution. The rest of the series will be published at NHLNumbers.)

So, just why are we on the brink of yet another NHL lockout? This graph provides a pretty good explanation.

But not many are really digging into the financial ins and outs of the NHL's internal economy. Instead, there's plenty of finger pointing going on between the two sides, by the media, and among the fans. Especially the rabble on Twitter, whose "uninformed ramblings" are inconsequential to the outcome, according to NHL deputy commissioner, Bill Daly. And in truth, he's quite right. He just doesn't have to be so rude about it.

But that's for another post on another day with altogether more amateurly hand-drawn charts. Today we're sticking with good old Excel as we go inside the NHL's finances; or at least a reasonable facsimile thereof, as compiled by our good friends at Forbes in their annual list of NHL team valuations. What do the financial performance metrics tell us about what differentiates the winners from the losers in today's NHL?

First, a note on the Forbes numbers. They are most certainly wrong. Some are collected from publically available documents and filings and some are estimates. Even then, there are many things that can get counted in a variety of ways when it comes to corporate finances, so comparing them is never going to be an exact science. This is even more true when we get to Operating Income, because any well-run company with a semi-competent CFO is going to try and use accounting methods to minimize the bottom line as much as possible in order to reduce the tax burden. All that being said, these are the best numbers I have, and at the very least provide a proxy for the real numbers. If anyone wants to send me the NHL's actual financial reports, I'll be happy to look through them.

With that non-trivial caveat in mind, the data presented here all comes from Forbes, and covers the period from 1998-99 to 2010-11. That gives us six years prior to the lockout and six years after. Forbes updates their NHL valuations in November, so there is no detailed team data available for the 2011-12 season. There were three teams that joined the NHL during the period but this has little effect on the graphs presented below since most of them are on a per team basis.

Financial Terminology

Revenues: Forbes presents only their estimate of total revenues and does not distinguish them from Hockey Related Revenues, so that's what we're using here.

Player Expenses: Again, Forbes reports actual dollars spent on player salaries and benefits. Thus the Player Expenses numbers are going to be quite different that what you'll find on CapGeek.

Gross Income: I'm calculating this as Revenues - Player Expenses. This represents how much cash teams have left over to spend on running the hockey team, interest charges, taxes and taking some kind of profit out at the end.

Operating Expenses: Forbes does not report this this explicity, but they do report Operating Income. Since Gross Income - Operating Expenses = Operating Income, some simple algebra allows us to calculate this as well.

Operating Income: This is what's left over from the Revenues once the Player and Operating Expenses have been spent. Typically this would not include ammortization, depreciation, interest or taxes, but it's not clear to me that those first two items really are excluded from these numbers in all cases.

Methodology

Plotting every team on these charts would create a spaghetti-like mess, so I've grouped the teams together in two different ways. The first is by a subjective assessment of how they were doing under the previous CBA:

Four teams improved, but were still losing money, so they were Less Bad: Washington, Anaheim, Buffalo and St. Louis. These were all Losing Money teams pre-lockout, so I guess this is good. Sort of.

Ten teams performed noticeably Worse post-lockout: Boston, Minnesota, San Jose, Tampa Bay, Atlanta, Nashville, Florida, Columbus, NY Islanders and Phoenix. These were all teams that were Breaking Even pre-lockout, with the exception of Minnesota, which had been profitable, and Phoenix which has been losing money since forever. This probably explains why Minnesota's Craig Leipold is on the NHL's bargaining committee this time around.

The remaining nine teams stayed about the Same, which is fine from an altruistic perspective since all but one were breaking even (Carolina was the one team that was Losing Money pre-lockout and lost about the same post-lockout). But for any of these owners that were hoping to extract a little cash out their team, the CBA didn't work out quite as intended.

By grouping the teams in these two ways it's much easier to look at how the various financial measures changed over the course of the new CBA. However, as discussed above, there is pretty good correlation between the two classification methods:

The Profitable teams generally did Better after the CBA.

Most of the Losing Money teams were Less Bad post-lockout.

The Breaking Even teams were almost evenly split between staying the Same and doing Worse.

As a result, looking at the changes in the financial metrics over time looks pretty much the same under both systems of classification. So in most cases I'm going to present the Profitable, Breaking Even and Losing Money classifications for the sake of simplicity.

With that bit of housekeeping out of the way, let's get to the data.

REVENUES

It's fairly obvious from this chart why the Profitable teams are that way: they generate more revenue. There was a significant separation pre-lockout and not only did it continue post-lockout, it noticeably widened. And as has been pointed out before, this widening gap in revenue distribution when combined with the salary floor, which is directly linked to aggregate revenues, keeps the Money Losing means in the fiscal hole they're unable to dig themselves out of.

(In essence, as in the real economy, costs are socialized while profits are privatized. Maybe I should have labeled the top group as the 1%...)

The other interesting point that stands out is how steady the growth rates are. There are no major up and down swings. Pre-lockout, there was a distinction in revenues between the Profitable teams and the rest, but the Breaking Even teams were slowly closing the gap, growing revenues at an 8% clip, compared to 6.8% for the Profitable teams. The Losing Money teams were falling farther behind at just 3.7% growth.

Then we had a lockout and a new CBA designed and imposed by the league. This was supposed to be the CBA to end all CBAs. The owners got their holy grail: a salary cap and cost certainty. The CBA also included a token amount of revenue sharing, which seems to have had an immediate impact. In the first year after the lockout, revenues dipped for the Profitable and Breaking Even teams, but jumped significantly for the Losing Money teams. Hooray! Success!

Not really. This appears to have been a short-lived, one-time gain.

After that first post-lockout year, the Breaking Even teams dropped to 6% growth rate, while Losing Money teams continued along at the same-old 3.8%. But the Profitable teams really took off, jumping to 9.5% annual compound growth from 2006 to 2011. Some of this can be attributed to the rising Canadian dollar during this period since Toronto and Montreal represent almost 50% of the total post-lockout revenues of the five teams in this grouping. And indeed, growth revenue growth has slowed somewhat for the Profitable teams in recent years, but this can be attributed to the effects of the 2008-9 financial crisis on Detroit and a plateauing of revenues in Minnesota. In general, though, the higher revenue growth rates have continued apace.

Conclusions

The conclusions we can draw from the revenue data are as follows:

Other than the one-time shift in revenues following the lockout, the CBA has had little to no positive impact on the structural problems with the NHL's internal economy. The Profitable teams continue to capture a larger piece of the pie. The five Profitable teams collected 20% of the total NHL revenues in 1999 and 23% in 2011. Conversely, the six teams Losing Money dropped from a 20% to 17% share of revenues, and fittingly, the Breaking Even teams stayed at about 60%.

The recent increases in total NHL revenues have been driven in large part by the Profitable teams. It is unclear if this is simply due to their market sizes or just better management or some other factor. Hmm, well since Toronto is such a large contributing factor here, I'm thinking we can rule out better management. What this says to me is that all these new revenue streams at the league level that everyone keeps talking about are not having as large of an impact as we might think. Most revenue growth still appears to be generated at the local franchise level, and thus accrues to individual teams.

While aggregate NHL revenues have grown significantly over the last 11 years, the extremely unequal distribution of revenues among franchises has not enabled the struggling teams to climb out of their fiscal holes to reach profitability. At best, the CBA as implemented, as slowed the descent into bankruptcy for the Money Losing teams and maintained the status quo for those Breaking Even.

In Part 2 of this series on the CBA's winners and losers, I'll look at how Player Expenses have changed over time and how they relate to the Gross Income available to fund hockey operations and generate profits.

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Based on the strength of the league's top 5 revenue generating teams, it's amazing that the PA's first counter proposal - to shift revenues from rich to poor teams - was rejected. The league should be open to a luxury tax; one that provides slight competitive advantage to the money clubs, in exchange for a share of the revenue pie with lesser clubs.

The league's ability to generate revenues is not the problem - it is the ability of have not teams to keep up.

The league's ability to generate revenues is not the problem - it is the ability of have not teams to keep up.

Quite true...and the issue is the CBA between the players and NHL can't possibly fix that since so many of the have nots are fundamentally broken - unless the clubs/owners agree to distribute all revenues evenly (won't ever happen) or they convince the players to play voluntarily.

Based on the strength of the league's top 5 revenue generating teams, it's amazing that the PA's first counter proposal - to shift revenues from rich to poor teams - was rejected. The league should be open to a luxury tax; one that provides slight competitive advantage to the money clubs, in exchange for a share of the revenue pie with lesser clubs.

The league's ability to generate revenues is not the problem - it is the ability of have not teams to keep up.

Bingo. Baseball has teams every year which are not making jack, but still are profitable because they're not spending much and are living off of revenue sharing. This isn't the greatest thing in the world, but it means that you don't have owners threatening lockouts frequently.

PS It's odd to see the Isles included in the breaking even column, since I'm pretty sure they're losing more than 8M Forbes claims.

Great article! I've been frustrated with the lack of real dollars and sense numbers (pun intended) in this go round. Last time the NHL was pretty candid about their poor financial situation and as a result I think most fans, myself included, agreed the owners needed a substantial change. This go around they've been less candid and I think most fans, myself included, thought this meant they were doing just fine and were simply being greedy b$&@);ds.

Theres some great insights in these numbers though. The first is the obvious revenue disparity issue already mentioned. But the thing that jumped out at me was (if I read that first graph right), the total league profit was only $119M. On revenues of $3.3B, that's only a 3.6% margin. So even if revenues were 100% shared, the league still has a pretty paltry profit margin that most business men would never consider acceptable. Actually makes me think the league has a valid argument, and wonder why they don't come out with more public numbers?

If you did drop the player share 6 or 7 % that margin would be close to 10% and probably workable. If you fixed the cap-circumventing contracts, even more so. Still wouldn't fix the revenue disparity caused issues. But honestly, a 50/50 split, phased in over a few years, with an increase in revenue sharing and a few cap-loophole closures... Done. It seems so obvious that's where it's going to end up I don't understand why both sides can't see it and just getter done.

Anyway, is this Forbes data (flawed as it maybe) available? I'd love to do some more number crunching with it :)

One other thought: league seems to be demanding a pretty significant immediate clawback which the players are refusing to consider. So why not phase in the cap % decrease over a few years, but make the floor drop effective immediately? You give up a few seasons of parity until the new % is fully in place, but it means no impact to existing player's contracts, immediate financial pressure relief for poorer teams, and gradual profit growth for all teams. Everyone wins, no?

Bettman did say something rather interesting today. The NHL's proposals end up effectively rolling back player salaries around 9%, whereas the NHLPA proposals have around a 7% rollback.

That tells me they're a lot closer than we think.

I don't think there's any major structural issues (e.g. guaranteed contracts, etc) that either sides aren't willing to compromise on, so basically it ends up being the owners want that 9% back.

The players seem to think that they're in a Sophie's Choice, but basically they're far better off taking the 9% haircut than lose any part of the season, since even two weeks off will make them lose the 2% difference anyhow, and then the owners will still want 9% (or more, seeing as how the players have zero leverage once the lockout starts) back.

So, what you're telling us, is that the rich got richer, and the poor got poorer. Right?

The Rangers and Red Wings of the league continue to be able to spend a gazillion dollars on the superstars and work voodoo magic to get all their contracts under the cap. The Predators and Coyotes of the league continue to siphon money from other teams and lose their homegrown talent to the Rangers and the Red Wings of the league.

The owners voted in a criminal to be the owner of a team and a weasel to run the league.

And we're surprised there's going to be a lockout? I'm surprised most hockey arenas haven't been bulldozed in favour of solid-gold statues depicting Bettman as a Herculean-like god.

If this past summer in Washington is even a tiny hint at what the winter is like, it probably costs hundreds of millions to cool that place. Not to mention the prime real estate location (downtown Washington, surrounded by shopping and restaurants).

Also, lots of corporate sponsors and friends get tickets for Caps games (as they do anywhere else). Full seats does not necessarily = full house. Think, even 2,000 people don't go, don't spend $20 per night (most more), 41 games a season - that's $1.6M lost per season right there. And that guess is probably low.

It is surprising though, considering that pre-lockout, the Caps were piss poor, and post-lockout they had Ovechkin, Green, Varlamov, etc.

1) From a players perspective why agree to (another) give back if the problem creating the financial problems isn't being addressed?
2) What will/would stop the owners from asking for another 5-10% of HRR next time, and the time after that? At some point the players have to draw the proverbial line in the sand
3) es, a 50:50 split sounds equitable to us fans, but to the players its (another) give back and would position themselves for yet another with each passing new CBA

Going on your top graph and assuming teams did not change between categories throughout I come up with in 2011, the profitable teams averaged $37mm (total $185mm of income), the Breakeven teams averaged $0mm and the losing teams averaged -$9mm (total -$171mm). So total league income was $14mm. Divided by 30 teams that means the average owner had an income of $0.467mm.

So the average owner made less than the league minimum player contract, or in other terms a rate of return of 0.2% on their ~$200mm investment.....

Going on your top graph and assuming teams did not change between categories throughout I come up with in 2011, the profitable teams averaged $37mm (total $185mm of income), the Breakeven teams averaged $0mm and the losing teams averaged -$9mm (total -$171mm). So total league income was $14mm. Divided by 30 teams that means the average owner had an income of $0.467mm.

So the average owner made less than the league minimum player contract, or in other terms a rate of return of 0.2% on their ~$200mm investment.....

Yeah the players definitely are getting the shaft on that deal.....

My bad had a number in the wrong spot. the average owner took home $4.4mm. Still only a 2% return, and in line with a second liner.

That's true, but again the average is dragged down by a number of loser organizations which are losers for a variety of reasons unrelated to the players - Phoenix, NYI, Columbus, etc. - those clubs lose money because they are poorly managed or bad markets or both.

Then there's teams like the Flames and Oilers who probably could take home more money with just a bit more managerial prudence and foresight. Instead, the billionaires that own both teams are likely more concerned with overall value of the franchise versus year-to-year profits and/or extending the bottom line not through shrewd management, but by building a fancy new ice palace at the public's expense.

Im not really on anyone's side in this fight. It wouldn't surprise me if the players take home a 50/50 split once this is all done and that's not necessarily a terrible thing. But I'm guessing all that will do once more is make a few rich teams richer, rather than fix the fundamental issues that perpetually dog the bottom third of the NHL's franchises.

This is a terrific look at the financial circumstances. Thank you for the information, GC.

Anyone find it odd that in the last lockout the player stance would essentially have rung the death knell for the financially weak teams. This time around the players seem to be taking a hard line at least in part for better revenue sharing for teams in the same (or worse) situation.

The league wants to adjust the player/owner split and move it closer to 50/50, I believe. The players want to see more equitable revenue sharing between the Philadelphias and the Columbus'.

It seems to me that these are the areas upon which they need to find common ground and then work towards compromise in the surrounding details.

Based on the strength of the league's top 5 revenue generating teams, it's amazing that the PA's first counter proposal - to shift revenues from rich to poor teams - was rejected. The league should be open to a luxury tax; one that provides slight competitive advantage to the money clubs, in exchange for a share of the revenue pie with lesser clubs.

The league's ability to generate revenues is not the problem - it is the ability of have not teams to keep up.

i felt that the nhlpa's first counter proposal had the most significant address to the core issue of failing teams, and it bothers me to a certain degree that it is rejected out of hand. the players wanted to reduce their share of HRR, but use that reduction directly in revenue sharing for the non profitable teams.

if the profitable teams really don't need that help, it leaves the "break even" teams (i.e. ~1/3 of clubs) who might be bothered by not getting anything impactful out of the proposal. but, i think, when confronted by the other 2/3 of clubs, they should have been overruled, as the league needs to help those that are failing to try and get them to a break even point as well (improving the league as a whole). instead, it seems like a rejection that simply leads to a "player fleecing" that results in the profitable clubs making more money, the break even teams either remaining break even, or slightly posting into the profitable, and the failing teams continue to fail, just by a smaller margin that doesn't bring them into the realm of the breaking even point. this rejection to me means that the owners aren't interested in improving the league as a whole, which would invariably lead to future profit gain overall, but just want some cash now (ie a cash grab by the profitable and break even teams). imo, as an owner of a failing team, i would still be pretty pissed about that. i don't know why their group is not more fractured in these negotiations.

The players are willing to take further salary cuts if the system is fixed. If all they are doing is lowering their salaries they will be asked to do it every 5-6 years when a CBA expires.

They want a system put in place to allow the have not teams to run profitably so that the system is fixed and their salaries will not be further reduced.

There are several ways of doing that.

Option 1) tax the rich to help the poor (the same as in society) the more profitable a club the higher the tax rates. Unprofitable clubs get a large tax rebate and clubs that are near the break even point get a small rebate.

Option 2) Apply a luxury tax. Have brackets of salary cap. You could use something like what I have shown below based on what a teams total in salaries is.

45-55 million recieves 10 million in aid
55-60 million nothing
60-65 million pays 10 million in luxury tax
65-70 million pays 20 million in luxury tax

Option 3) Either use a average team profit or median to decide the salary cap rather than total league revenues.

That's true, but again the average is dragged down by a number of loser organizations which are losers for a variety of reasons unrelated to the players - Phoenix, NYI, Columbus, etc. - those clubs lose money because they are poorly managed or bad markets or both.

Then there's teams like the Flames and Oilers who probably could take home more money with just a bit more managerial prudence and foresight. Instead, the billionaires that own both teams are likely more concerned with overall value of the franchise versus year-to-year profits and/or extending the bottom line not through shrewd management, but by building a fancy new ice palace at the public's expense.

Im not really on anyone's side in this fight. It wouldn't surprise me if the players take home a 50/50 split once this is all done and that's not necessarily a terrible thing. But I'm guessing all that will do once more is make a few rich teams richer, rather than fix the fundamental issues that perpetually dog the bottom third of the NHL's franchises.

I recognize these numbers are averages Kent, but even taking out those 3 loser teams and assuming high net losses of $40mm per each one of them the average income for an owner is ~$9mm. So the average owners who invested all this money and take on all the risk, take home ~$9mm while collectively the players take home ~$45-70mm per team.

Yes if the Oilers/Flames were well run, they could likely make the playoffs and increase their incomes, but as only 16 teams make the playoffs that lowers 2 other teams incomes. Net probably a slight increase in the average.

I agree 100% that if the league legitimately wants to be competitive and sustainable in all 30 markets, there should be revenue sharing among teams. That does not change the fact that the players make out like bandits no matter what % of HRR they negotiate.

The Toronto/Montreal/New York etc. owners make great profit at the expense of the rest of the league owners who quite frankly made a terrible investment by buying the team. I feel no pity for these billionaires who made bad choices, as ultimately it is the working stiff getting the shaft in ticket prices.

Would eliminating the salary cap floor for teams and implementing a luxury tax or cap transfer system bridge the gap between the owners and the players?

Making a team spend to the roster floor when they clearly can't afford to isn't going to keep them solvent for very long.

Or, maybe the solution is contraction or relocation of the worst or chronic offenders? I know that would kill Bettman's pride as he grew the league to 30 teams, but really, having 30 teams and having 30 profitable teams are two different things.

Would eliminating the salary cap floor for teams and implementing a luxury tax or cap transfer system bridge the gap between the owners and the players?

Making a team spend to the roster floor when they clearly can't afford to isn't going to keep them solvent for very long.

Or, maybe the solution is contraction or relocation of the worst or chronic offenders? I know that would kill Bettman's pride as he grew the league to 30 teams, but really, having 30 teams and having 30 profitable teams are two different things.

This seems like the best possible solution but there is no way the players would ever go for a cap with no floor. Plus the league wanted the cap to create parity in the league for overall league benefit.

If you run a public company that, say, is on an exchange, that money goes to the shareholders or goes into retained earnings. That's "profit" in the way you seem to understand it, with a RoR of 25%.

But if Murray Edwards is the sole shareholder, then he'll take that $250K as management wages (an expense from the team POV), or a bonus (again, an expense) or dividend income (this is after-tax), and the RoR of the company is zero. And it doesn't matter, because ME got his money.

I don’t’ know much about implementing a luxury tax or cap transfer system?

I know this much though, it wont be Bettman’s pride if he contracts teams. This is the one huge card the NHL can play.

If the NHLPA doesn’t want the proposal set forth by the NHL, then Bettman can use this card.

If the season is lost, you can almost guarantee it will have similar effect as the last lock out, lost wage, and the 150+ NHL hockey players that never played another game past 04/05 due to attrition alone.

Let’s say Bettman threatens to contract 5 teams, that’s a lot of out of work NHLPA players not including using attrition again from another lost season.

One other thought: league seems to be demanding a pretty significant immediate clawback which the players are refusing to consider. So why not phase in the cap % decrease over a few years, but make the floor drop effective immediately? You give up a few seasons of parity until the new % is fully in place, but it means no impact to existing player's contracts, immediate financial pressure relief for poorer teams, and gradual profit growth for all teams. Everyone wins, no?

Going on your top graph and assuming teams did not change between categories throughout I come up with in 2011, the profitable teams averaged $37mm (total $185mm of income), the Breakeven teams averaged $0mm and the losing teams averaged -$9mm (total -$171mm). So total league income was $14mm. Divided by 30 teams that means the average owner had an income of $0.467mm.

So the average owner made less than the league minimum player contract, or in other terms a rate of return of 0.2% on their ~$200mm investment.....

A floor is irrelevant if you are guaranteed a fixed share of HRR. If no floor means the league as a whole underspends on salaries, you just get the underspend back in the year end reconciliation as a bonus on your contract amount. So this shouldn't be a reason for the players to demand a salary floor.

This is a terrific look at the financial circumstances. Thank you for the information, GC.

Anyone find it odd that in the last lockout the player stance would essentially have rung the death knell for the financially weak teams. This time around the players seem to be taking a hard line at least in part for better revenue sharing for teams in the same (or worse) situation.

The league wants to adjust the player/owner split and move it closer to 50/50, I believe. The players want to see more equitable revenue sharing between the Philadelphias and the Columbus'.

It seems to me that these are the areas upon which they need to find common ground and then work towards compromise in the surrounding details.

Not really Rex.

If the players could push for a better revenue sharing model (and especially using a Luxury tax), it's really a win for players. More healthy markets means more safe jobs and ultimately higher average salaries.

If you run a public company that, say, is on an exchange, that money goes to the shareholders or goes into retained earnings. That's "profit" in the way you seem to understand it, with a RoR of 25%.

But if Murray Edwards is the sole shareholder, then he'll take that $250K as management wages (an expense from the team POV), or a bonus (again, an expense) or dividend income (this is after-tax), and the RoR of the company is zero. And it doesn't matter, because ME got his money.

Rate of Return applies to all investments whether public or private. Even in your hypothetical one owner system where he pays himself wage/bonus/dividend or some combination he will still be concerned about the percentage he is making from his investment, (I'm not going out on a limb to guess Murray Edwards has some business sense), as he will compare that to what he could make if he put his money elsewhere.

Not sure if you have ever heard of Private Equity? Pretty sure RoR is an important factor in all their economic decisions.

A floor is irrelevant if you are guaranteed a fixed share of HRR. If no floor means the league as a whole underspends on salaries, you just get the underspend back in the year end reconciliation as a bonus on your contract amount. So this shouldn't be a reason for the players to demand a salary floor.

Yes I agree with you, i was thinking more in a scenario with no fixed % of HRR to players and a higher cap with no floor.

Until individual Player valuations can be redifined fiscally on a leaguewide basis we are in trouble.Player dollar valuations must be tied into specific team dynamic contributions statisticly within the salary cap .The current dynamic is one where players valuations are artificially inflated and maintained by a leaguewide "marketplace catalysed"valuation based on misrepresented statistics and then owners are forced to fit these artificially inflated and unmanagable player valuations into their cap structures,we will never see a symbiotic balance between team revenues and players salary demands,until this re-evaluation of stats based leaguewide individual player valuation is completed.Statistics can only be used within an organisation and its dynamic operations as a functional tool,once they are utilised outside of this internal structure they become mere instruments of manipulation,dynamic catalysts used to misrepresent players true value from one team to another team within a salary cap context and this drives player salarys up artificially and makes the cap unmanagable.

"Hmm, well since Toronto is such a large contributing factor here, I'm thinking we can rule out better management."

There's a very large and important difference between management of hockey operations and management of business operations, and Toronto's business operations are some of the best in the business.

Yes, they are in a large market; that's quite an advantage and to argue otherwise would be silly. However, they're also in a large market where entertainment dollars get spread around a bit (NHL, NBA, MLB, MLS, the odd football game) compared to most other markets. Despite that, from ticket revenues to merchandise to sponsorships to TV exposure, they're an example for every other franchise in the league. The fact that they've done it with an on-ice product that hasn't made the playoffs for the entirely of this CBA makes their business record all the more impressive.